One of the problems with economic analysis these days is the tendency to focus on every new statistic that is released as the most important piece of information about the state of the economy. Very often the data is incomplete, or the month being reported on has been distorted by any of a number of possible influences from weather to strikes to Government programs. For example, over the past year there have been significant distortions in data on motor vehicle sales and US employment caused by two Government programs: the “cash for Clunkers” incentive program and the decennial US Census. Underlying the data, the trends have not changed dramatically.

US payroll employment jumped 1.0 million jobs in the first five months of the year creating optimism that the economy was taking off. But then it fell by nearly 300,000 in the subsequent three months. If we remove the impact of government hiring and firing, employment in the private sector, a much less distorted look at the data shows that the economy has been adding nearly 100,000 jobs per month. At that rate we will add more than 1 million jobs this year, not a boom, but not bad either.

Motor vehicle sales surged to an annual rate of more than 14 million units in August 2009. Still well below the 15 to 16 million the market averaged through most of the 2003-07 period, but up sharply from 9.8 million in June. However, once the program ended sales plunged. In fact, the underlying trend is more like 11.5 million units. This is yet another indicator that consumers, the historical driver of recovery are on the sidelines so far in this recovery. When auto sales start to rise, it will signal a positive shift in the recovery.

The same perspective needs to be applied to the real estate sector. While the trends are positive, we need to be careful about getting too optimistic (or pessimistic) based on one statistic. Underlying it all is a gradual steady improvement in leasing fundamentals driven by rising employment. Not exciting, but very important for the long term health of the industry.